How Fast Do Industrial Assets Really Sell?

Industrial assets are flying off the market. The industrial market in Orange County has historically low vacancy rates and rapidly increasing rents, and these fundamentals are driving investment activity. However, like the leasing market, there are limited investment opportunities. When an asset does come to the market, it sells quickly. SAME Investments recently brought a 99,552-square-foot industrial property to market in North Orange County that received three offers within 10 days of the listing and was completed within 120 days of hitting the market. LFT-Cliffwood purchased the property, which was the only available industrial asset of its size on the market at the time.

“The for-sale market for industrial properties 50,000 to 200,000 square-foot range in Orange County is almost non-existent,” Chris Migliori, an EVP at DAUM Commercial who represented the seller, tells GlobeSt.com. “Demand is simply outpacing supply and it has been that way for at least the past 36 months. Many owner-users requiring this size range are prepared to do a 1031 exchange into a building that offers increased capacity and utilization, trading big dollars for bigger dollars. If the building requirements are not fulfilled within a reasonable period of time, many owner-users will consider other markets that are adjacent to Orange County, like LA or the Inland Empire. That said, if a user has been operating in Orange County for many years, considering the trek to an alternative market might not be practical due to preferences of key employees, proximity to vendors, difficult traffic patterns, fuel, and wear and tear on vehicles.”

The high pricing and limited availability of investment opportunities has also pegged investors and owner-users against each other. “In Southern California it is not uncommon to see owner-users competing with institutional money and private investors in an exchange,” says Migliori. “It is more typical to see that type of activity in the industrial market with purchase prices north of $10 million.”

This has become the new normal in a market that is experiencing extreme demand, both for users and investment opportunities. “In the 31 years I have been in the business, I don’t believe we have seen an industrial market with this type of velocity,” says Migliori. “The industrial vacancy factor is 1.6%, and lease rates are moving in tandem. Business is strong in Orange County, with the unemployment rate at 3.9%, one of the lowest in the state. If a developer can find opportunities to acquire rare available land in Orange County, and get lucky enough to outbid 15 or so other highly qualified developers, the land will trade in the $45-59 per-square-foot range.”

To find an asset in this market, investors and owner-users need to be patient and give themselves plenty of time to find the right asset. “The market for 50,000 to 200,000 square-foot industrial buildings is extremely competitive, but if an owner-user is patient they will inevitably locate a building for lease or sale,” explains Migliori. “Lease rates in Orange County are $0.75 to $0.95 NNN per square foot, per month, depending on class type.”